WGU C214 Financial Management Concepts Practice Exam 2024, With Complete Solution

WGU C214 Financial Management Concepts Practice Exam 2024, With Complete Solution The matching principle in accrual accounting requires that: a. Expenses are matched to revenue recognition. b. Expenses are matched to the year in which they are incurred c. Revenues are matched to the year in which they are booked d. Revenues should be large enough to match expenses a The addition to retained earnings each year is: a. Net Income b. Net Income minus dividends c. Net Income plus dividends d. Net Income times the Payout Ratio b Net working capital equals: a. Current assets b. Current liabilities c. Current assets minus current liabilities d. None of the above c What does the Sarbanes-Oxley Act require companies to do? a. Have a board of directors b. Register all foreign sales c. Make estimated tax payments d. Have transparent, accurate financial statements d If a company produces and sells a product only in the U.S., what international developments may affect its sales? a. Fluctuating exchange rates b. Imports of competing products c. Immigration policy d. Inflation in Europe b Which is not a reason to calculate WACC? a. To measure the overall cost of financing b. Needed to calculate Cash Flow Financing c. It is the minimum required return for investment projects d. Measures investors' required return on firm securities b If a firm's goal is to maximize stockholder wealth, which would the firm avoid? a. Stock buybacks b. Risky long-term investments c. Investments with negative NPV d. Transparency in financial statements c In which market transaction is the corporation not involved? a. Primary Markets b. Secondary Markets c. IPO d. Buy Backs b What does Beta measure? a. The yield on the S&P 500 b. The relative riskiness of an individual stock c. Indicates the market value of the stock d. Stocks to avoid purchasing b Which accounting decision uses estimates? a. Life of a new asset b. Accounts payable c. Amortization schedule for a loan d. Cost of a new machine a An investment with a term of less than one year is: a. A current liability b. A current asset c. Is in retained earnings d. Is a long-term liability b Which does not affect the required yield on a bond? a. Riskiness of the issuer b. Collateralization c. Treasury yields d. Face Value d If the yield of a bond is higher than the coupon rate, what is the price? a. Premium price b. Par price c. Discount price d. Secondary market price c Why would a company buy back outstanding stock? a. To boost the price of the stock b. To increase financial leverage c. Lack of investment opportunities d. All of the above d Which cash flow statement contains income statement items? a. CFO b. CFI c. CFF d. None of above a Why are accurate sales forecasts important? a. To determine the appropriate debt/equity ratio b. To have right amount of production resources c. To determine WACC d. The time value of money b If a firm cannot access markets sufficiently to meet their DFN, what strategies might they use? a. Slow sales growth b. Lower dividend payout c. Increase the net margin d. All of the above. d To induce an investor to purchase a risky security, the investor must receive a. A Prospectus b. Collateral c. Risk Premium d. Favorable tax treatment c If two companies use different inventory valuation methods, it is called a. A valuation difference b. An accounting difference c. A trend difference d. None of above b Junk bonds are those whose rating is below a. AAA b. AA c. A d. BBB d Diversification protects against a. Recession b. Market risk c. Individual firm risk d. Inflation risk c If you are assessing a firm's ability to meet short term obligations, you would use which ratio? a. Debt ratio b. Quick ratio c. Gross margin d. Financial leverage b To assess firm efficiency, which ratio would you use? a. Asset turnover b. Operating margin c. Debt ratio d. None of the above a Which term describes the sensitivity of bond price to interest rate increases? a. Duration b. Periodicity c. APY d. PE a When is a company a good investment? a. When it is profitable b. When it market price is less than intrinsic value c. When earnings are growing rapidly d. Stock price is very stable b If Accounts Receivable increase, what is impact on cash flow? a. Increases b. Decreases c. No change d. Insufficient information to determine b Which of the following is not a cost of holding inventory? a. Opportunity Cost b. Product Cost c. Storage Cost d. Leverage Cost d WACC is based on a. Book value of equity b. Proforma balance sheet c. Current market prices & yields d. The firm's ROE c Export-oriented firms should favor a. Strong dollar b. Weak dollar c. High tariffs d. High interest rates b A prudent investor would: a. Buy growth stocks b. Minimize risk c. Select a portfolio consistent with risk-return preferences d. Maximize returns regardless of risk c What are the impacts of tariffs? a. Fewer jobs and cheaper products b. More jobs and more expensive products c. More jobs and cheaper products d. Increased imports b The difference between GAAP and Tax income statements include a. Expense recognition in different time periods b. Actual taxes lower than GAAP taxes c. Depreciation expense differs d. All of the above d Which item is not part of Net Working Capital? a. Accounts receivable b. Accounts payable c. Retained Earnings d. Inventory c Which is not a reason for a firm to prefer debt issuance rather than stock? a. Debt has a lower required return b. It reduces bankruptcy risk c. Debt interest is tax deductible d. Avoid dilution of ownership b What is the difference between common and preferred stock? a. Preferred stock has a maturity date b. Preferred stock dividends are fixed c. Common stock has priority of claims in bankruptcy d. Preferred stock cannot be bought back b What is the key term that identifies a single period stock valuation question? a. One year b. Growth c. Beta d. Equity a What is the key term that identifies a Gordon Model stock valuation question? a. One year b. Growth c. Beta d. Equity b What is the key term that identifies a CAPM stock valuation question? a. One year b. Growth c. Beta d. Equity c Which is not a technique for changing the bond-stock funding mix? a. Stock buy-backs b. Change Payout ratio c. Increase Operating Leverage d. Bond maturities c Which is not a means of eliminating idiosyncratic risk? a. A diversified portfolio b. Hold a portfolio of low beta stocks c. Buy a low beta stock d. Hold a portfolio of high beta stocks c In evaluation of investments, how is the terminal cash flow treated? a. Added to last differential cash flow b. Added as an additional year of cash flow c. It is not used. d. It is subtracted from the last differential cash flow a If IRR is greater than WACC, an adopted project, a. Decreases shareholder value b. Does not affect shareholder value c. Increases shareholder value d. Cannot be determined